Since we already know that fuel price is going to raise during the years (at an average yearly rate greater than the % you pay for hedging for 1 year) and since we know that it is, on the other hand, very volatile in the short term, wouldn't an optimal strategy be to always hedge 100% of the fuel? You might loose something here and there, but in the long run you win. Or do you?

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exchlbg

Always climbing fuel prices are not a guarantee, as fuel prices and spikes are not tied to real world and run at random.In last MT game fuel prices first declined and then got stuck at low level towards end of game, so I lost by hedging.Fuel hedging is a lottery.

Always climbing fuel prices are not a guarantee, as fuel prices and spikes are not tied to real world and run at random.In last MT game fuel prices first declined and then got stuck at low level towards end of game, so I lost by hedging.Fuel hedging is a lottery.

Agreed, but its true that with hedging you know where you end up, fuel wise. The problem is not during your hedge period, if you hedged high, or low. But the problem is occuring when your hedge runs out and suddenly your fuel price is not 100 but 300.

Airlines which do not hedge are suffering the same but can at least change their day to day strategy on the rising price as they ntice all the time. If you do not prepare well you'll be the one ending up dead. Problem is your spending, if your profit decreases but you are spending the same (lets say deliveries of planes) you're doomed

I'm flying turboprops, they're doing allright, just a little playing time to get my mind of the upcoming exams heh

Fuel hedge is never lottery. If you hedge your Fuel on a level you know you will earn money. Its just a chance you will earn less money. So its just a way to know the future ( atleast next 12 months ) and sometimes thats alot better then the alternative.